Ross Greenwood speaks to Ferrier Hodgson Partner Morgan Kelly, the administrators of SumoSalad, about why landlord disputes are not the reason to blame for 85 stores going into administration
Introduction: Business as usual at SumoSalad?
Ross Greenwood: Speaking about businesses in trouble, last week we told you about Sumo Salad which had been one of the real, in many ways, stars of the retail sector. Going out there with people that previously had, well, prepared food and burgers, or whatever it might’ve been going out there with salads. They were really good at it. What they announced last week was that they’re going to see 85 stores into administration and part of the problem is the relationship between the retailers and the big landlords, the shopping center owners such as Westfield and others.
Well, we spoke at the time with Anthony Hero, who’s a lawyer who has represented many of those owners of these small businesses and also many of the Sumo Salad proprietors in the past as well. We’ve spoken to him last Thursday. Here’s what Anthony Hero told us in.
Anythony Hero: – the shopping center has to declare their sales to the landlord. If the landlord sees they’re doing well, the landlord may and often does introduce a competitor but the tenant’s locked into the rent that they agreed to pay.
Ross Greenwood: Well, remember that last year the founder of Sumo Salad, Luke Baylis sent a couple of stores into administration because of landlord disputes to try and really bring them to the table, otherwise they wouldn’t have gone there but as we pointed out last week Ferrier Hodgson was appointed as the administrator of the Sumo Salads some 85 of them. Morgan Kelly is one of those administrators, he’s online right now. Many thanks for your time Morgan.
Interview with: Morgan Kelly, Partner, Ferrier Hodgson
Morgan Kelly: It’s a pleasure, Ross.
Ross Greenwood: When you walked in what have you discovered so far?
Morgan Kelly: First of all it’s not actually the individual stores that are in voluntary administration, Sumo Salad Group operates the franchise model and each franchise, individual business is run by independently from the franchise group. Those individual stores still continue to operate. It’s the head office of Sumo Salad Group company which is the franchisor which is actually in voluntary administration. The individual stores are still operating completely business as usual.
Ross Greenwood: Is there still an issue with the landlords and the rents they’re paying, or the terms they’re having to operate under? Given the fact, I presume, that on a central basis Sumo Salad, the organization would negotiate those leases on behalf of the franchisees.
Morgan Kelly: Yes, you’re quite right. There is no issue with the leases, or landlords at this stage. You may recall Sumo Salad put a couple of companies into voluntary administration a year ago. There are a handful of the franchise venues that were struggling with leases and struggling with paying rent and Westfield were very commercial and cooperative with renegotiating those and with coming to commercial arrangements. Some of those, their stores were in fact exited because they were simply no longer viable. That issue has been dealt with and that’s been resolved.
What we’re now dealing with, what has now occurred is that the groups now they are attempting to deal with it. It’s legacy issues and some of the balance sheet problems that exist in prior to their previous voluntary administration. They’ve now reached a point where they need to use the voluntary administration process again to deal with those legacy issues. We don’t anticipate having negotiations with landlords about leases, because it’s literally going to be business as usual as far as the franchisee stores are concerned and their landlord.
Ross Greenwood: Okay and right now would you be looking for a buyer, or some sort of financier to come in and look after the administration because that’s effectively what’s needed is to recapitalize the parent company.
Morgan Kelly: That’s correct. What will be occurring now is that it will be- with dealing with all stakeholders at the moment within the group and coming up with some kind of plan, or proposal for creditors. Part of that process may involve a third party coming in and having private equity injection, or some re-capitalization process, or maybe even outright sale. We’ll consider all options and we’ll certainly be engaging with some of the parties.
There has been a lot of interest in the group previously. It’s got a great deal of longevity this brand. Sumo Salad group was founded in 2003. The healthy food offering has been really well received and the brand has a great deal of longevity and there’s potential for more development for the group, but attention to look at new sales channel which I had thought with grab and go ready meals or lots of opportunities to partnering with other organizations. We actually think that the group can emerge from this process much stronger.
Ross Greenwood: I’m presuming right now, Morgan, that what you’ve got to do is maintain the confidence of the public, the community, the potential creditors, all have the confidence in those franchisees, that they are still viable and alive, that the business isn’t going to disappear because the very worse thing that could happen at the moment is that they suddenly find their terms and trading conditions altered in some way.
Morgan Kelly: Absolutely and we’re engaging with the landlords and we’re engaging with all their suppliers, the franchisees all the time and to reassure them that it is business as usual. We continue to operate business as usual basis and hopefully keeping everyone confident in the process. We’re going by maintaining their business as usual status and as the process goes on we’ll continue to liaise with everybody, people, stakeholders fully informed on how we’re going but until then it is business as usual.
Ross Greenwood: I’ll tell you what, good to have you on the program from Ferrier Hodgson, one of those partners who has been appointed as an administrator to the parent chain of Sumo Salad Group, Morgan Kelly and again as you can hear he says he thinks it’s going to come out the other side. You would imagine a business such as this would, but again as I said the other day, does really highlight the relationship between some of those landlords, big landlords and some of those individual store owners, having been where they were last year, I just would hope to see that it does continue and Morgan as always appreciate your time on the program.
Morgan Kelly: No worries, Ross. Thanks very much.
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